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USDN Protocol
USDN Protocol
  • Introduction
    • Quick Overview
  • THE USDN Protocol
    • Protocol USDN Overview
      • Simplified Examples
    • Protocol Balance
      • Imbalance Protections
      • Equilibrium: The Role of the Funding Rate
    • Vault Side
      • Vault Overview
      • Rebase Mechanism
      • Yields
        • Funding Rates
        • Yield-bearing asset
    • Long Side
      • Long Perpetual
      • Long Overview
      • Dip Accumulator
      • wstETH Collateralization
      • Liquidations and Minimum Position
    • Inside the Protocol
      • Protocol vs Market Fluctuations
      • 1. Providing a Price
      • 2. Calculating Long PnLs
      • 3. Applying the Funding Rate
      • 4. Liquidating Positions
    • Integration
      • WUSDN
    • Fees
      • Protocol Fees
      • Liquidation Fee
    • Protocol parameters
    • Oracles
    • Governance
    • Risks
    • SDEX
    • Addresses
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    • Glossary
  • PERIPHERY
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  1. THE USDN Protocol
  2. Fees

Liquidation Fee

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Last updated 2 months ago

The liquidation fee, also known as the "liquidation penalty," is applied to protect the protocol. When a user opens a , a liquidation price is determined, and a 2% liquidation penalty is added to this price. This means the user will be liquidated at a slightly higher price than expected.

The penalty serves two main purposes:

  1. To safeguard the protocol against risks if liquidation is delayed, potentially causing bad debt.

  2. To incentivize liquidators, users, and holders.

This penalty is directly included in the calculation, so the user always sees the final liquidation price, including the penalty.

Penalty Distribution

If the Dip Accumulator Is Not Triggered:

  • Liquidator costs and bonus: A portion of the penalties covers the liquidator's costs, as liquidating a position involves expenses. Additionally, a small bonus is provided to incentivize users to liquidate positions promptly, ensuring dead positions do not remain in the protocol. ()

  • Vault allocation: The remaining penalties are allocated to the , reinforcing the protocol and benefiting USDN token holders.

If the Dip Accumulator Is Triggered: ()

  • Dip accumulator rewards: 60% of the penalties are distributed as rewards to users who provided liquidity to the dip accumulator, proportional to their contributions.

  • Liquidator costs and bonus: A portion of the penalties is used to cover liquidator costs and provide a bonus, as described above.

  • Vault allocation: The remainder is allocated to the vault.

Learn more about liquidations here
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